How Does Bankruptcy Affects Your Credit Score?

HOW DOES BANKRUPTCY AFFECT YOUR CREDIT SCORE?

NATHAN A BERNEMAN, APC

Bankruptcy is a hotly debated topic for several reasons. So far this year, more than 50,000 Americans have filed for bankruptcy in the state of California. Across the US, that adds up to more than half a million people who turn to bankruptcy. The most common reasons that Americans pursue bankruptcy are because of medical debt, job loss, credit card misuse, divorce, and unexpected expenses.

How will bankruptcy affect your future or affect your credit score? Will you ever be able to recover from bankruptcy? Will it ruin your credit?

What is a Credit Score? Why is it Relevant for You? Your Credit Score is just a statistical number that takes into consideration various factors in your credit history and reporting details to determine how financially viable or responsible you've been. It can include your lines of credit, payment of bills, length of credit, outstanding loans, and other factors when it associates a three-digit number with your name and social security number.

With a poor credit score, those same financial institutions will decline your loan, or they may charge a higher rate of interest on your loan since you're a higher risk.

For a variety of reasons, it's important to make sure that you maintain a good credit score. Here we have mentioned the effects on credit score by chapter 7, chapter 11 and chapter 13 bankruptcy filing:-

Effects of Chapter 7 on Your Credit Score The big difference between Chapter 13 and Chapter 7 Bankruptcy plan is that with Chapter 7, you are and your bankruptcy attorney is not required to propose a repayment plan.

You are not required to pay back your creditors, but you may be required to surrender any non-exempt property to the bankruptcy court. Exempt property can include jewelry (depending on the value), as well as clothes, household items, etc. Non-exempt property can then be sold, and the money will be dispersed to creditors.

Effects of Chapter 11 to Your Credit Score Chapter 11 Bankruptcy is typically the route that businesses take, but you can also go this route. Chapter 7 and Chapter 13 are cheaper and a quicker form of bankruptcy, but Chapter 11 usually involves larger sums of money.

It allows you to reorganize your debt, and a bankruptcy attorney can help you determine if this option is the best one for you.

This form of bankruptcy sets up a plan whereby the creditors aren't able to take action against the company or individual, while that person or organization develops a reorganization plan. That plan includes how the company will operate, and how the debt will be repaid. It also can include carefully laid out details about how the company will reduce assets and expenses to remain viable.

Effects of Chapter 13 Filing on Your Credit Score When you file for Chapter 13 bankruptcy protection with your bankruptcy attorney, that filing appears on your credit report and it impacts your credit score. If you're even considering bankruptcy, though, you've already been struggling with your debt and bills.

Your credit score is probably already affected by late payments, high credit usage, and other derogatory factors.

So filing for Chapter 13 bankruptcy may not affect your credit scores that much more. With Chapter 13 Bankruptcy, your bankruptcy attorney in Los Angeles will set up a monthly payment plan for up to 5 years. Based on that plan, you'll submit payments to the court-appointed trustee, who will disperse the funds to your creditors.

All forms of bankruptcy may remain as part of your credit report for 10 years, although some reporting agencies remove Chapter 13 reporting after seven years. Still, it will affect you somewhat no matter which form of bankruptcy you select. You must carefully weigh your options and discuss your situation with a bankruptcy lawyer in Los Angeles.

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